Entain confirms Tabcorp advance

London-listed global betting firm Entain has lodged a takeover bid for Tabcorp’s wagering business, which would break up the $9bn gambling giant.

Shareholder calls for the split of Tabcorp’s strong-performing lottery business away from its struggling wagering arm look set to be heeded. Picture: AAP

London-listed global betting firm Entain has confirmed it has lodged a takeover proposal for Tabcorp’s wagering business, which would break up the Australian $9bn gambling giant.

Entain announced to the London Stock Exchange on Tuesday night Australian time that it had “made a non-binding indicative offer to acquire [Tabcorp’s] wagering and media business.”

“Whilst discussions are at an early stage, any transaction would be in-line with Entain’s current M&A strategy of expanding across regulated international markets,” the statement said.

“As such, this would present an opportunity to acquire an attractive business which, if combined with Entain’s existing Australian business, would create a leading, integrated multichannel and multi-brand wagering company.”

The announcement came as shareholder calls for the split of Tabcorp’s strong performing lottery business away from its struggling wagering arm look set to be heeded, after the gambling giant confirmed earlier on Tuesday it had received “a number” of approaches to carve up its $9bn empire after reports by The Australian’s DataRoom.

Tabcorp confirmed contact from a number of suitors on Tuesday afternoon after The Australian’s DataRoom column re­vealed earlier in the day that it had fielded approaches in recent weeks, and after reports late last year that private equity was circling the group amid shareholder discontent about management strategy.

British-listed gambling giant Entain, which owns the Ladbrokes brand in Australia, is understood to be actively courting Tabcorp about taking over its ­wagering division.

Meanwhile big private equity firms have been circling Tabcorp, with two consortiums in hot pursuit, both keen to strike a deal that would result in renowned digital betting pioneer Matthew Tripp heading the company.

Shareholders have backed a break-up, believing significant value could be unlocked by having Tabcorp’s lotteries business operating on its own.

Tanarra Capital, the Melbourne investment house headed by John Wylie and a major Tabcorp shareholder, said a lotteries-focused Tabcorp would be rerated by the market as an infrastructure-style stock with regular and safe income growing annually that could see it trading at 17-25.5 times EBITDA.

“We think it is worth at least $5 per share, before any control premium,” Tanarra portfolio manager Vidhur Rangaswamy told The Australian.

“A separation of lotteries and wagering liberates each business to pursue its own growth strategy and best deliver shareholder value over the long term.”

Tabcorp shares closed up 8.8 per cent at $4.46 on Tuesday — their highest level in almost 12 months.

The company has been losing market share in its wagering business to online digitally focused corporate bookmaker rivals such as Sportsbet and Ladbrokes, and is also in a state of flux, hunting for a new chief executive after long-serving boss David Attenborough and chair Paul Dwyer announced their joint departures in July last year.

After initially hosing down takeover speculation, on Tuesday afternoon Mr Attenborough confirmed in a statement that the company had received several unsolicited proposals.

“Tabcorp confirms that it has received a number of unsolicited approaches and proposals in relation to a potential transaction involving Tabcorp’s wagering and media business,” Mr Attenborough said.

“The proposals were expressed to be confidential, indicative, non-binding and subject to numerous conditions including due diligence, financing and various regulatory approvals.

“There is no certainty that any transaction will occur. The Tabcorp board is assessing the proposals and Tabcorp will update the market in due course.”

Mr Tripp, a former BetEasy boss, is understood to have been approached by two private equity consortiums late last year, seeking his digital betting credentials to transform Tabcorp’s embattled wagering division

He also built up the No 1 digital wagering business in Australia, Sportsbet, from a $250,000 operation in 2005 before selling it for $388m in a deal completed in 2011.

One party is said to be eager to bid for the entire Tabcorp business in a deal that may be worth $9bn. The other group was interested in only the TAB wagering business, potentially valuing the unit at up to $3bn.

Tabcorp’s main source of value and revenue is now its lotteries division, which it expanded significantly in its $11bn merger with Tatts in 2017. Its wagering division — which traces its origins 60 years ago when Chester Manifold, a member of Victoria’s squattocracy, politician and owner of the small group of regional newspapers, convinced the then government to create the Victorian Totalisator Agency Board (TAB) — has been under pressure.

While customers are still betting on the TAB app, growth during the COVID-19 pandemic for its digital-only competitors such as Sportsbet (now merged with BetEasy) and ­Ladbrokes has outstripped Tabcorp.

Its wagering business has been hit hard by the closure of pubs, clubs and most TAB outlets during the pandemic. TAB retail outlets are a vital source of betting for the company, generating about 45 per cent of wagering turnover pre-coronavirus, and where most of its Sky Racing viewers are found. In April last year, it stood down about 700 workers, mostly from the retail outlets, and applied for the federal government’s JobKeeper wage subsidy after showing that its revenues had collapsed by more than 50 per cent.

But even before COVID-19, the company’s wagering division was struggling, weighed down by the costs of integrating UBET, which was acquired during the Tatts merger.

The Australian understands Tabcorp’s board received a takeover proposal for its wagering division in the past two weeks.

It is understood the plan involves a demerger of the lotteries arm and returning the business back to shareholders with some cash, while taking ownership of the wagering division.

Industry sources pointed to Ladbrokes as the party that had potentially made the approach, but the British bookmaker declined to comment.

Buying the wagering business would add 30 per cent to Ladbrokes’ market share, analysts say. Ladbrokes has been running the ruler over Tabcorp in the past 18 months, as reported by DataRoom in November.

The Australian also understands that US investment bank Goldman Sachs had been working with a Hong Kong-based group with an interest in Tabcorp last year, with some questioning whether this could be the Hong Kong Jockey Club.

Tabcorp recorded an $870m statutory loss for 2020 and is not paying a dividend.

It raised $600m through an entitlement offer to pay down debt and strengthen its balance sheet amid the pandemic. It was also hit by technology problems that closed down its betting services to customers during the last spring racing carnival.